On May 19th, 2015, Gerry and Josh will be speaking to members of the Chester County Bar Association on the topic of “Cybersecurity for Lawyers and Clients”, providing a one-hour crash course on the opportunities and perils of this brave new world of incredible technological innovation, and how the legal framework is struggling to keep up. President Obama has proposed a “Consumer Privacy Bill of Rights,” the Computer Fraud and Abuse Act (“CFAA”) is being interpreted in ever-changing ways by different courts, the FTC is attempting to stay ahead of the curve, and businesses and consumers are caught in the middle. The resulting questions include: How is a lawyer to advise his or her clients about best practices? Are there best practices for lawyers and law firms themselves regarding cybersecurity? Is it time to seek a quotation for cyberinsurance?

Philly Tech Week has blossomed into an annual festival, with multiple events around the city celebrating innovation and technology. Tomorrow, one of them is at the doorstep of our law firm, and we’ll be a sponsor. Next month, we’ll also be speaking at a Chester County Bar Association lunchtime event on May 19. The topic is “Cybersecurity for Lawyers and Clients.”

Elman Technology Law sponsoring Philly Tech Week event in Media, PA

Tomorrow, April 23, from 5 to 7 PM, there will be a Philly Tech Week event on Veterans Square in Media, PA (in front of our office). Innovators and entrepreneurs will be sharing cutting-edge inventions. For years, we’ve been at the intersection of legal innovation and technological innovation, and this event is right in our wheelhouse.

Visit with colleagues from our firm at our sponsor’s table, where you can pick up a calendar with images from historic patents or other item of swag. Enjoy the pleasures of the beer garden and interactive game area as well.

And check the list of speakers to find out if we have been selected to present for 5 minutes about an innovative service. Which of these would you be most interested in hearing about: “Protecting you from the Internet of Things”, “Secure your Nest and Your Business”, and “Legal essentials to help consumers and businesses deal with this brave new world of technological innovation”? Drop us a line to let us know what you think.

We look forward to learning from Steve’s extensive experience with the European Patent Office in seeking to overcome “new matter” objections and other particular difficulties.

Though educated primarily in the United States, Steve is licensed as a German and European Patent Attorney and as a European Trademark Attorney. He holds degrees in chemistry and biochemistry from the University of California at San Diego and from Yale (Ph.D. 1999).

This meeting is co-sponsored by Elman Technology Law and Bob Yarbrough’s Delaware County Pennsylvania Intellectual Property Forum. Pennsylvania CLE credit will be available for existing and new members of the Forum. Participation is free of charge, but preregistration is required. Call 610-892-9942 for further information or to register .

The opinion of the Court resurrects an archaic requirement of “invention” that was disavowed by Congress in 1952. The late Judge Giles S. Rich, father of the patent statute revision enacted at that time, may no longer rest in peace. See his article: Laying the Ghost of the “Invention” Requirement, 1 AIPLA Q.J. 26-45 (1972), recently reprinted in 41 AIPLA Q.J. 1-28 (2013) with a foreword by Judge Paul R. Michel. The reprinted article is available online (AIPLA member login required).

And yet, the Court’s Myriad Genetics opinion written by Mr. Justice Thomas states:

The [patentable] Chakrabarty bacterium was new “with markedly different characteristics from any found in nature,” … due to the additional plasmids and resultant “capacity for degrading oil.” …. In this case, by contrast, Myriad did not create anything. To be sure, it found an important and useful gene, but separating that gene from its surrounding genetic material is not an act of invention [emphasis added]. Groundbreaking, innovative, or even brilliant discovery does not by itself satisfy the §101 inquiry [as to subject matter patent-eligibility].

But last week, Vermonters’ focus on patents shifted from obtaining patent protection for their innovations to avoiding burdensome claims of patent infringement, and from the seat of federal government in Washington, D.C. to the state capital of Montpelier.

State Attorney General Sues Patent Owner That Demands Licenses from End-Users of Info Tech Invention

The Attorney General’s complaint filed in Vermont Superior Court alleges that MPHJ (and 40 “shell subsidiary” companies with names that look like they were spooned from a bowl of alphabet soup) has engaged in unfair and deceptive acts under Vermont’s Consumer Protection Act. MPHJ has sought to assert certain patents against a variety of businesses by sending letters to many Vermont small businesses as part of a nationwide campaign offering licenses under the patents. The letters are said to contain multiple deceptive statements and demand about $1,000 per employee.

The complaint alleges that the following were illegal under the Vermont statute, as unfair trade practices in commerce:

Stating that litigation would be brought against the recipients, when MPHJ was neither prepared nor likely to bring litigation;

Using legal counsel to imply that MPHJ had performed a sufficient pre-suit investigation, including investigation into the target businesses and their potentially infringing activities, that would be required to justify filing a lawsuit;

Targeting small businesses that were unlikely to have the resources to fight patent-litigation, or even to pay patent counsel;

Sending letters that threatened patent-infringement litigation with no independent evidence that the recipients were infringing its patents;

Shifting the entire burden of the pre-suit investigation onto the small businesses that received the letters;

Propounding burdensome information demands on any business that claimed not to infringe the patents;

Using shell corporations in order to hide the true owners of the patents, avoid liability, and encourage quick settlements; and

Making deceptive statements in threatening letters which would likely lead recipients to believe the following:

MPHJ would sue the target businesses if they did not respond within two weeks;

MPHJ would sue the target businesses if they did not pay money;

MPHJ had a reasonable basis for identifying the target businesses as infringing its patents;

Subsidiary Shell LLCs were exclusive licensees able to enforce the patents;

Target businesses were within the sending Shell LLC’s alleged area of exclusivity;

MPHJ’s licensing program had received a positive response from the business community;

Many or most businesses were interested in promptly purchasing a license from MPHJ;

Based on prior licensing agreements, the fair price of a license was between $900 and $1200 per employee;

Target businesses were receiving a third letter, which refers to two prior letters, when in many cases recipients had received no prior letters.

The patents referred to in the sample letter attached to the complaint are US 7,986,426; US 7,477,410; US 6,771,381; and US 6,185,590. A pending patent application is also identified in the letter, Serial No. 13/182,857, with a statement that it is expected to issue soon. (I checked the online docket of the U.S. Patent and Trademark Office and found that the application apparently was voluntarily withdrawn from issue a few months ago to permit additional prior art to be placed before the Examiner, then formally allowed again last Monday, May 20.) These patents are a family stemming from a provisional U.S. patent application filed in 1998 by Illinois inventor Laurence C. Klein on aspects of distributed computer architecture and “virtual copying.”

Sample claims from the more recent patents are:

Claim 1 of US 7,986,426:

A computer data management system including at least one of an electronic image, graphics and document management system capable of transmitting at least one of an electronic image, electronic graphics and electronic document to a plurality of external destinations including one or more of external devices and applications responsively connectable to at least one of locally and via Internet, comprising:

at least one scanner, digital copier or other multifunction peripheral capable of rendering at least one of said electronic image, electronic graphics and electronic document;

at least one memory storing a plurality of interface protocols for interfacing and communicating;

at least one processor responsively connectable to said at least one memory, and implementing the plurality of interface protocols as a software application for interfacing and communicating with the plurality of external destinations including the one or more of the external devices and applications,

wherein the computer data management system includes integration of at least one of said electronic image, electronic graphics and electronic document using software so that said electronic image, electronic graphics and electronic document gets seamlessly replicated and transmitted to at least one of said plurality of external destinations.

Claim 8 of US 7,477,410:

A computer data management system including at least one of an electronic image, graphics and document management system capable of transmitting at least one of an electronic image, electronic graphics and electronic document to a plurality of external destinations including one or more of external devices and applications responsively connectable at least one of locally and via the Internet, comprising:

at least one memory storing a plurality of interface protocols for interfacing and communicating;

at least one processor responsively connectable to said at least one memory, and implementing the plurality of interface protocols as a software application for interfacing and communicating with the plurality of external destinations including the one or more of the external devices and applications,

wherein the computer data management system includes the capability to integrate the electronic images into a destination application without the need to modify the destination application.

The Attorney General’s suit doesn’t allege that any of the patents is invalid, but says that a previous assignee of the patents had settled litigation by withdrawing suits without an adjudication of validity of any of the patents. I’ve found that in the past couple of years, the patents were being similarly asserted against alleged infringers by a company called Project Paperless, LLC. An Atlanta-based company Blue Wave Computing announced last August that they had stood up in court against Project Paperless, whereupon the patent holder withdrew the suit unconditionally.

More to the point seems to be the allegation that MPHJ Technology, after acquiring this family of patents from a previous assignee, sent flurries of letters threatening suit on the patents but hasn’t actually sued anyone nor even hired counsel in Vermont to prepare for such litigation. Also, the complaint accuses MPHJ Technology of failing to do their own “due diligence” investigation as to whether the recipients of the letters are in fact infringing any of the claims. The sample letters attached to the complaint, however, seem to be an informal version of “discovery” requests, asking for factual responses in the form of checklists. Whether it’s an “unfair trade practice” in Vermont for a patent holder to communicate this way with businesses that it deems are likely to be infringers is a question raised by this suit.

In addition, the Vermont legislature has just passed an amendment to the state Consumer Protection Act, which was signed into law, also on May 22. It provides certain remedies to Vermonters accused in bad faith of patent infringement. As this provision is not scheduled to take effect until July 1 this year, the Attorney General’s lawsuit against MPHJ Technology Investments, LLC, alleges violation of the preexisting version of the Act.

Here is the new provision of Vermont law:

Sec. 6. 9 V.S.A. chapter 120 is added to read:

CHAPTER 120. BAD FAITH ASSERTIONS OF PATENT INFRINGEMENT

§ 4195. LEGISLATIVE FINDINGS AND STATEMENT OF PURPOSE

(a) The General Assembly finds that:
(1) Vermont is striving to build an entrepreneurial and knowledge based
economy. Attracting and nurturing small and medium sized internet
technology (“IT”) and other knowledge based companies is an important part
of this effort and will be beneficial to Vermont’s future.
(2) Patents are essential to encouraging innovation, especially in the IT
and knowledge based fields. The protections afforded by the federal patent
system create an incentive to invest in research and innovation, which spurs
economic growth. Patent holders have every right to enforce their patents
when they are infringed, and patent enforcement litigation is necessary to
protect intellectual property.
(3) The General Assembly does not wish to interfere with the good faith
enforcement of patents or good faith patent litigation. The General Assembly
also recognizes that Vermont is preempted from passing any law that conflicts
with federal patent law.
(4) Patent litigation can be technical, complex, and expensive. The
expense of patent litigation, which may cost hundreds of thousands of dollars
or more, can be a significant burden on small and medium sized companies.
Vermont wishes to help its businesses avoid these costs by encouraging the
most efficient resolution of patent infringement claims without conflicting with
federal law.
(5) In order for Vermont companies to be able to respond promptly and
efficiently to patent infringement assertions against them, it is necessary that
they receive specific information regarding how their product, service, or
technology may have infringed the patent at issue. Receiving such information
at an early stage will facilitate the resolution of claims and lessen the burden
of potential litigation on Vermont companies.
(6) Abusive patent litigation, and especially the assertion of bad faith
infringement claims, can harm Vermont companies. A business that receives
a letter asserting such claims faces the threat of expensive and protracted
litigation and may feel that it has no choice but to settle and to pay a licensing
fee, even if the claim is meritless. This is especially so for small and medium
sized companies and nonprofits that lack the resources to investigate and
defend themselves against infringement claims.
(7) Not only do bad faith patent infringement claims impose a
significant burden on individual Vermont businesses, they also undermine
Vermont’s efforts to attract and nurture small and medium sized IT and other
knowledge based companies. Funds used to avoid the threat of bad faith
litigation are no longer available to invest, produce new products, expand, or
hire new workers, thereby harming Vermont’s economy.

(b) Through this narrowly focused act, the General Assembly seeks to
facilitate the efficient and prompt resolution of patent infringement claims,
protect Vermont businesses from abusive and bad faith assertions of patent
infringement, and build Vermont’s economy, while at the same time respecting
federal law and being careful to not interfere with legitimate patent
enforcement actions.

§ 4196. DEFINITIONS
In this chapter:
(1) “Demand letter” means a letter, e-mail, or other communication
asserting or claiming that the target has engaged in patent infringement.
(2) “Target” means a Vermont person:
(A) who has received a demand letter or against whom an assertion
or allegation of patent infringement has been made;
(B) who has been threatened with litigation or against whom a
lawsuit has been filed alleging patent infringement; or
(C) whose customers have received a demand letter asserting that the
person’s product, service, or technology has infringed a patent.

(b) A court may consider the following factors as evidence that a person
has made a bad faith assertion of patent infringement:
(1) The demand letter does not contain the following information:
(A) the patent number;
(B) the name and address of the patent owner or owners and
assignee or assignees, if any; and
(C) factual allegations concerning the specific areas in which the
target’s products, services, and technology infringe the patent or are covered
by the claims in the patent.
(2) Prior to sending the demand letter, the person fails to conduct an
analysis comparing the claims in the patent to the target’s products, services,
and technology, or such an analysis was done but does not identify specific
areas in which the products, services, and technology are covered by the
claims in the patent.
(3) The demand letter lacks the information described in subdivision (1)
of this subsection, the target requests the information, and the person fails to
provide the information within a reasonable period of time.
(4) The demand letter demands payment of a license fee or response
within an unreasonably short period of time.
(5) The person offers to license the patent for an amount that is not
based on a reasonable estimate of the value of the license.
(6) The claim or assertion of patent infringement is meritless, and the
person knew, or should have known, that the claim or assertion is meritless.
(7) The claim or assertion of patent infringement is deceptive.
(8) The person or its subsidiaries or affiliates have previously filed or
threatened to file one or more lawsuits based on the same or similar claim of
patent infringement and:
(A) those threats or lawsuits lacked the information described in
subdivision (1) of this subsection; or
(B) the person attempted to enforce the claim of patent infringement
in litigation and a court found the claim to be meritless.
(9) Any other factor the court finds relevant.

(c) A court may consider the following factors as evidence that a person
has not made a bad faith assertion of patent infringement:
(1) The demand letter contains the information described in subdivision
(b)(1) of this section.
(2) Where the demand letter lacks the information described in
subdivision (b)(1) of this section and the target requests the information, the
person provides the information within a reasonable period of time.
(3) The person engages in a good faith effort to establish that the target
has infringed the patent and to negotiate an appropriate remedy.
(4) The person makes a substantial investment in the use of the patent or
in the production or sale of a product or item covered by the patent.
(5) The person is:
(A) the inventor or joint inventor of the patent or, in the case of a
patent filed by and awarded to an assignee of the original inventor or joint
inventor, is the original assignee; or
(B) an institution of higher education or a technology transfer
organization owned or affiliated with an institution of higher education.
(6) The person has:
(A) demonstrated good faith business practices in previous efforts to
enforce the patent, or a substantially similar patent; or
(B) successfully enforced the patent, or a substantially similar patent,
through litigation.
(7) Any other factor the court finds relevant.

§ 4198. BOND
Upon motion by a target and a finding by the court that a target has
established a reasonable likelihood that a person has made a bad faith
assertion of patent infringement in violation of this chapter, the court shall
require the person to post a bond in an amount equal to a good faith estimate
of the target’s costs to litigate the claim and amounts reasonably likely to be
recovered under § 4199(b) of this chapter, conditioned upon payment of any
amounts finally determined to be due to the target. A hearing shall be held if
either party so requests. A bond ordered pursuant to this section shall not
exceed $250,000.00. The court may waive the bond requirement if it finds the
person has available assets equal to the amount of the proposed bond or for
other good cause shown.

§ 4199. ENFORCEMENT; REMEDIES; DAMAGES
(a) The Attorney General shall have the same authority under this chapter
to make rules, conduct civil investigations, bring civil actions, and enter into
assurances of discontinuance as provided under chapter 63 of this title. In an
action brought by the Attorney General under this chapter the court may
award or impose any relief available under chapter 63 of this title.
(b) A target of conduct involving assertions of patent infringement, or a
person aggrieved by a violation of this chapter or by a violation of rules
adopted under this chapter, may bring an action in Superior Court. A court
may award the following remedies to a plaintiff who prevails in an action
brought pursuant to this subsection:
(1) equitable relief;
(2) damages;
(3) costs and fees, including reasonable attorney’s fees; and
(4) exemplary damages in an amount equal to $50,000.00 or three times
the total of damages, costs, and fees, whichever is greater.
(c) This chapter shall not be construed to limit rights and remedies
available to the State of Vermont or to any person under any other law and
shall not alter or restrict the Attorney General’s authority under chapter 63 of
this title with regard to conduct involving assertions of patent infringement.